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CMHC is a borderline scam
March 4, 2017
4:54 pm
MillerCK
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As far as I can tell, CMHC is you buying the bank insurance for your own higher-interest loan, and effectively paying for CMHC's collection arm to come after you (and charge usurious interest rates) should the bank be able to foreclose and dump your property at a loss, as they are so wont to do. I know you gotta live somewhere, but between mortgage rates, taxes and insurance, costs and hassles of selling (i.e., its illiquidity) and maintenance (and/or condo fees), I see real estate (especially new) as almost a liability now, like timeshares.

March 4, 2017
5:33 pm
Loonie
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Maybe you're not interested in owning property, MillerCK?

Complaining about mortgage interest rates when they are the lowest in history is just not on.

You're going to pay property taxes one way or another, whether it's directly or hidden in rent.

Let's get back to the basic problem, which is housing affordability. And this is a problem whether you rent or buy for lots of folks. If you have enough money to put down on your property, you aren't going to need any involvement with CMHC and will not have to pay them a cent.

Whether you like the deal or not, nobody is obliged to loan you money to buy your property. CMHC provides a necessary public service for those whom the banks don't consider a good enough risk otherwise. If you don't like that, then complain about how the banks operate, about non-resident speculators or the restrictions of mountains and sea hemming in the west coast. Or just don't enter the market.

More info on CMHC rates etc are here:
https://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm

March 4, 2017
5:43 pm
Top It Up
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Loonie said

CMHC provides a necessary public service for those whom the banks don't consider a good enough risk otherwise.  

Owning a home is a privilege NOT a right. The government, ergo the taxpayers, aren't there to support individual's whims and fancies. Want to buy a house ... save for it or better yet, get a better job or, get a second job.

March 4, 2017
6:21 pm
Loonie
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Top It Up said

Owning a home is a privilege NOT a right. The government, ergo the taxpayers, aren't there to support individual's whims and fancies. Want to buy a house ... save for it or better yet, get a better job or, get a second job.  

I think it's a misunderstanding to think that the taxpayer is funding the CMHC insurance. I believe it is self-financing. As a crown corporation, it issues bonds (or something very similar, if I have the terminology wrong), and you can choose to invest in them if you wish.

This quote from their press details for 2015 annual report:
"CMHC operates its insurance and securitization activities in a commercially viable manner at no cost to taxpayers, with due regard for loss."

March 4, 2017
6:52 pm
AltaRed
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It would likely only be in a very major housing crisis of foreclosures where CMHC may run out of funds to pay off the banks. Essentially that is what happened in the USA with Freddic Mac and Fannie Mae where the fed gov't had to bail them out, but I understand that has all been paid back now.

As has been said, get yourself a 25%(?) down payment and not have to have CMHC back that mortgage in the first place...and no insurance premiums either! Yes indeed, dear MillerCK, you have to buy the insurance if you don't put enough skin into the game.

March 4, 2017
7:39 pm
NorthernRaven
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I don't think CMHC issues bonds to provide itself with capital - it has its premiums as income. It provides guarantees on mortgages that are securitized by others into bonds, as well as the Canada Mortgage Bonds from the Canada Housing Trust.

The Freddie and Fanny troubles are of course something to watch for. FWIW, the 2015 CMHC report has results from some 5-year stress-testing scenarios - one is a 30% drop in housing prices and peak unemployment at 11.6%, another is a global depression with housing down 43% and peak unemployment over 15%. The predicted losses in either weren't enough to take CMHC's capital below minimum levels.

March 5, 2017
10:11 am
MillerCK
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Hey Loonie, I own a house, and have never used CMHC myself. Remember when mortgage rates were 20%. I know they're low now. Else there'd have been no consumer spending the last 10 years. Seems to me like the gov grabbed any mortgage interest savings via increased property taxes. So watch out if, by some miracle, rates ever get back to anywhere near historical averages. Although, inflation still remains your largest tax bite.

Hey Top (and Alta), thanks for the financial advice. Amazed that there are any poor people left with wisdom like yours abounding. I've been lucky myself. Born back when homes were a thou or two and taxes negligible. Back when education was cheap and most jobs were good paying jobs with benefits. Plus I belong to no visible minorities and had generous parents. So, like you I'm guessing, I'm good. My CMHC experiences are vicarious. Owner falls on hard times. Bank forecloses on a home with a mortgage 1/3 payed off. Evicted owner waits for some token reimbursement, only to, five years later, when again working at a decent full time job, to be told he owes 10,000 for bank declared losses, plus and additional 5,000 for interest at 15 percent. Not surprised they're doing okay.

March 5, 2017
10:53 am
Top It Up
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MillerCK said

Hey Top (and Alta), thanks for the financial advice. Amazed that there are any poor people left with wisdom like yours abounding.

When you live in MB, where a Socialist government bankrupted the province at every turn for 16 years, that fed and nurtured the hands out for hand outs mentality . we now look forward to a Conservative government who are asking the citizens to take control of their own destiny and not look for the taxpayers to pay for their whims and fancies.

March 5, 2017
10:53 am
Norman1
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MillerCK said
…My CMHC experiences are vicarious. Owner falls on hard times. Bank forecloses on a home with a mortgage 1/3 payed off. Evicted owner waits for some token reimbursement, only to, five years later, when again working at a decent full time job, to be told he owes 10,000 for bank declared losses, plus and additional 5,000 for interest at 15 percent. Not surprised they're doing okay.  

There's likely more to the story than you were told by the owner.

Doesn't matter that the mortgage is 1/3 paid off.

If the unfortunate owner was the only one in the neighbourhood to be foreclosed, then the bank will receive a bid for at least the original value of the house and foreclosed owner will receive at least the 1/3 of the mortgage paid back.

However, if most of the neighbours also fell on hard times and were foreclosed, then all the house prices in the neighbourhood will fall substantially. Bank would be very lucky to get the outstanding mortgage back from the sale. That's what happened in Alberta and during the 2008 housing crises in the US.

March 5, 2017
10:58 am
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Norman1 said

Bank would be very lucky to get the outstanding mortgage back from the sale. 

If it's a CMHC insured mortgage there's absolutely zero loss to the bank . the bank simply bills CMHC for the shortfall make-up.

It's CMHC that chases the defaulter, NOT the bank.

March 5, 2017
11:02 am
Norman1
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Insinuations that CMHC is somehow costing taxpayers are unfounded. Government backed doesn't necessarily mean taxpayers are writing cheques every year to fund it.

According to table on page 35 of the 2015 annual report, CMHC collected $1.4 billion that year in insurance premiums and fees. Total claims paid that year was $0.35 billion. CMHC profit from their mortgage insurance operations that year was about $1 billion.

Balance sheet on page 60 shows CMHC has retained earnings of $18.8 billion over the years. That means CMHC has had $18.8 billion more in income over the years than expenses.

There are no obvious signs that taxpayers had to support CMHC beyond the initial seed capital of $25 million. That $25 million is less than 1/10th of the $500 million budgeted by the federal government for this year's Canada 150 celebrations.

March 5, 2017
11:10 am
Norman1
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Top It Up said

If it's a CMHC insured mortgage there's absolutely zero loss to the bank . the bank simply bills CMHC for the shortfall make-up.

It's CMHC that chases the defaulter, NOT the bank.  

Not sure what your point is. Were you expecting the insurer CMHC to just eat the loss?

As well, if it was a federally-regulated bank, I don't think they are allowed to give uninsured high-ratio mortgages.

March 5, 2017
11:13 am
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Norman1 said

Not sure what your point is..  

Just responding to your point -

"Bank would be very lucky to get the outstanding mortgage back from the sale."

March 5, 2017
11:51 am
Norman1
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Top It Up said

Just responding to your point -

"Bank would be very lucky to get the outstanding mortgage back from the sale."  

When a whole neighbourhood is being foreclosed, mortgage lenders would be lucky to recover the outstanding mortgage amount from the sale of the houses.

Are we now blaming the banks for having mortgage default insurance and not taking a loss in such cases? Not like they have a choice under the Bank Act. The mortgage default insurance is mandatory for them with high-ratio mortgages. This is from CMHC: Who Needs Mortgage Loan Insurance?:

…The Canadian Bank Act prohibits most federally regulated lending institutions from providing mortgages without mortgage loan insurance for amounts that exceed 80% of the value of the home or purchases with less than 20% down payment.

March 5, 2017
11:57 am
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Norman1 said

Are we now blaming the banks for having mortgage default insurance and not taking a loss in such cases?

This discussion seems to be pretty straight forward yet it's blowing right past you.

March 5, 2017
12:02 pm
Norman1
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Top It Up said

Norman1 said

Are we now blaming the banks for having mortgage default insurance and not taking a loss in such cases?

This discussion seems to be pretty straight forward yet it's blowing right past you.  

If you had a point, maybe I would be able to see it.

Perhaps you are not aware that a foreclosed borrower can sue a lender for the difference should the lender sell the property below its market value. It is a myth that a lender can sell a foreclosed home for just the outstanding balance of the mortgage, below its market value.

March 5, 2017
12:31 pm
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Norman1 said

Perhaps you are not aware that a foreclosed borrower can sue a lender for the difference should the lender sell the property below its market value. It is a myth that a lender can sell a foreclosed home for just the outstanding balance of the mortgage, below its market value.  

What is market value in a down market? If the defaulter walks away from his mortgage, the bank merely has to show due diligence in the sale within a timeframe of how long it has to list the property before selling to the highest bidder. If there really is a housing bubble in Van and TO and interest rates do rise where does the CMHC stand?

I want the government out of the business, the bank act revised, and the banks to charge the real cost of lending and holding the risk of mortgages. After all that's how we got here in the first place - extending mortgages to 40 years and banks acting like go betweens without an iota of risk . pretty damned easy to post billion dollar quarterly profits when you assume minimal risk.

March 6, 2017
4:32 am
Loonie
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Top It Up said

What is market value in a down market? If the defaulter walks away from his mortgage, the bank merely has to show due diligence in the sale within a timeframe of how long it has to list the property before selling to the highest bidder. If there really is a housing bubble in Van and TO and interest rates do rise where does the CMHC stand?

I want the government out of the business, the bank act revised, and the banks to charge the real cost of lending and holding the risk of mortgages. After all that's how we got here in the first place - extending mortgages to 40 years and banks acting like go betweens without an iota of risk . pretty damned easy to post billion dollar quarterly profits when you assume minimal risk.  

And you expect a Conservative government to help you with this agenda? They've always been in bed with the banks, and always will be. If it hadn't been for, I think it was Chretien (maybe Martin) standing in their way, we would have been in the same banking mess as the US in 2008. I can still remember the look on Flaherty's face as he realized his bacon had been saved by the foresight of previous Liberal govt to which he'd been vehemently opposed. Of course, he never let on. I'm not saying the Liberals are saints either, but on this occasion they did stand up to the banks.

I wouldn't consider your plan practical. CMHC has, overall, been a good idea. Everything can be improved, but it has enabled a lot of people to own their own homes who might never have done so otherwise, and the vast majority have paid off their mortgages or are paying them off now. Default rate is extremely low. It's not really fair that those who have rich and generous mommies and daddies who can and will put up the cash are the major ones who can buy, which is the way it is now for tons of people. And it was true for a lot of us older types as well, who got some help from mommy and daddy and were thus able to avoid CMHC premiums. It would be even worse without CMHC because the banks would not lendto these people. The way it is now, in TO and Van, people need mommy and daddy AND also the CMHC quite often.
I think your understanding of how society functions is incomplete. When people can't afford to buy, the rental market gets tighter, then they can't find a place to rent or can't afford it, then they become destitute and/or desperate and end up couch surfing, living in cars, having difficulty continuing to go to work, then become unemployed and/or burdens on the mental health system and even the justice system, which we all pay for. This is not a good recipe for society. CMHC is a much more sensible solution. It doesn't solve everything, but it's a piece of the solution.
I assure you, the banks will never pick up the slack if you take away the CMHC because they fundamentally couldn't care less about low down payment buyers. It's not their market and they're really only interested in making their stockholders happy. Now, you might argue that for a mortgage that is insured by a government-backed 3rd party, they ought to be required to give the corresponding borrowers better rates which would lessen the burden of that insurance payment; and then I might agree with you.

March 6, 2017
10:16 am
MillerCK
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Norman1 said
Balance sheet on page 60 shows CMHC has retained earnings of $18.8 billion over the years. That means CMHC has had $18.8 billion more in income over the years than expenses.

Interesting info, Norman. Thanks. Since it's the borrower who pays the bank's CMHC fees and insurance (tacked onto the mortgage), and the borrower whom CMHC's aggressive and (in my opinion) underhanded collection arm goes after to recover any bank-declared losses (w/ exorbitant interest), it seems like it's the poorest members of society that this 18.8 billion in earnings has come from, none of which have the resources to challenge a huge corporation like a bank in a law suit, some of which surely wind up needing social assistance. And so, ultimately, it probably is the taxpayer picking up a lot of the tab.

March 6, 2017
6:59 pm
Norman1
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Norman1 said
Balance sheet on page 60 shows CMHC has retained earnings of $18.8 billion over the years. That means CMHC has had $18.8 billion more in income over the years than expenses.

MillerCK said
Interesting info, Norman. Thanks. Since it's the borrower who pays the bank's CMHC fees and insurance (tacked onto the mortgage), and the borrower whom CMHC's aggressive and (in my opinion) underhanded collection arm goes after to recover any bank-declared losses (w/ exorbitant interest), it seems like it's the poorest members of society that this 18.8 billion in earnings has come from, none of which have the resources to challenge a huge corporation like a bank in a law suit, some of which surely wind up needing social assistance. And so, ultimately, it probably is the taxpayer picking up a lot of the tab.  

The situation is not as simple as that.

CMHC fees and insurance premiums are not always paid by the borrower. For low-ratio mortgages, that don't require default insurance, the lender may pay the CMHC premium to turn the low-ratio mortgage an insured one. The lender can then sell the insured mortgage to a mortgage-backed security pool and get paid afterwards for collecting the payments and other servicing.

Federally-regulated lenders can do this to free up money for more profitable uses. The provincial credit unions can now do the same through their federally-regulated bank Concentra Financial.

As well, there are high earners who, for some reason, just can't seem to come up with the $200,000 down payment for an $800,000 home.sf-embarassed With CMHC, they just have to come up with $40,000 and carry the $760,000. Such borrowers are far from poor. Right now, such a mortgage would require family income of at least $150,000/year to qualify for CMHC insurance.

Landlords also prefer to have as little equity as possible in their buildings so that they can acquire more buildings.

I don't think that $18 billion CMHC has in retained earnings has come just from the poor.

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